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Court of Appeal Arnhem-Leeuwarden: Factual disposition is an essential requirement for exercising a right of retention

Factual disposition essential requirement exercising right retention

Court of Appeal Arnhem-Leeuwarden: Factual disposition is an essential requirement for exercising a right of retention

19.12.2016 NL law

By ruling that a subcontractor had not succeeded in proving its "factual disposition" over the object on which the subcontractor claimed to exercise a right of retention, the Court of Appeal's  judgment follows the approach taken in recent case law, that in order to claim the exercise of a right of retention the claimant must have the discretion to surrender the object under retention, which in turn requires the claimant to have factual disposition over such object.

Court of Appeal Arnhem-Leeuwarden 13 September 2016 (ECLI:NL:GHARL:2016:7314)

The Dutch Civil Code provides that: “a right of retention is the power vested in an obligee, in the cases specified by law, to suspend the performance of an obligation to surrender a thing to his obligor until settlement of the claim.” The discretion to surrender requires factual disposition over the relevant object. In a previous judgment, the same Court of Appeal  held that factual disposition should be exclusive to the party claiming entitlement to exercise the right of retention. This requirement was heavily criticized in legal literature.

In this particular instance, a housing foundation employed a contractor for the construction of multiple residences, which in turn instructed a subcontractor to perform certain installation works therein. During the course of the works, the contractor stopped paying the subcontractor’s invoices, prompting the latter to exercise a right of retention over the building site. In response, the housing foundation informed the subcontractor that it did not acknowledge the subcontractor's right of retention because the subcontractor never had the (exclusive) factual disposition required to exercise such a right in the first place. Subsequently, the housing foundation removed the locks and fences placed by the subcontractor around the building site.

The subcontractor commenced proceedings against the housing foundation, claiming damages resulting from the fact that the housing foundation had frustrated the subcontractor's right of retention. The District Court dismissed the claims on the grounds that the subcontractor never had the (exclusive) factual disposition required to exercise such right of retention in the first place. The Court of Appeal held that factual disposition exists when the subcontractor has become the holder of the site in the regular performance of its contract. The subcontractor submitted statements from four people involved in the construction to support its claimed factual disposition. These statements revealed, however, that others in addition to the subcontractor also had access to the site and that no act of surrender by the subcontractor would have been required in order for it to return the building site to the disposition of the builder or the housing foundation. The Court of Appeal held that the subcontractor had not succeeded in proving factual disposition and therefore dismissed its claims.

In the underlying case, recognizing the judgment's practical relevance, the Court of Appeal initially proposed that prejudicial inquiries be submitted to the Supreme Court. However, the subcontractor and housing foundation opted to resolve the matter by submitting further evidence to the Court of Appeal. The requirement of exclusivity of factual disposition was not considered further, leaving this issue to be considered in future case law. Developments in this line of case law will be closely observed by legal practitioners and construction professionals alike.

Team

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